Trump's Shadow Casts Over the Fed’s First Rate Cut of 2025

The Federal Reserve’s decision to implement a 25-basis-point rate cut in September 2025 marks a pivotal shift in monetary policy, as Chair Jerome Powell described it as a “risk management rate cut.” This move, the central bank’s first reduction in borrowing costs for the year, reflects a recalibration in response to evolving economic conditions. While inflation remains above the Fed’s 2% target—core PCE inflation stands at 2.8%—the slowing labor market has prompted policymakers to prioritize mitigating the risk of a prolonged economic downturn.

The rate cut, announced on September 17, comes amid growing pressure from President Donald Trump, who has criticized the Fed’s pace and called for more aggressive reductions. Trump’s recent installation of Stephen Miran, a close economic advisor, on the Federal Open Market Committee (FOMC) has introduced an unprecedented level of political influence into the decision-making process. Miran, who was confirmed just hours before the meeting, is seen as a key architect of the administration’s economic policies, potentially altering the central bank’s traditional consensus-driven approach.

The immediate impact of the rate cut is expected to be modest. Consumer borrowing costs—particularly for credit cards and auto loans—could see small reductions in the coming months, though the effects will vary across sectors. For example, credit card interest rates, currently near a record high of 20%, are likely to decrease slightly by early 2026. Meanwhile, mortgage rates, which are more influenced by Treasury yields than the Fed’s benchmark rate, are expected to fall gradually if further cuts follow. The average 30-year fixed-rate mortgage is already at 6.13%, down from its peak earlier in the year, though most homeowners with fixed-rate mortgages will see no change unless they refinance or move.

The Fed’s decision is also seen as a response to a cooling labor market. Job growth slowed to an average of 29,000 hires per month in the second half of 2024, with recent data showing a decline in job openings and a rise in unemployment to 4.3%. These trends have raised concerns about a potential recession, particularly in light of President Trump’s expansive tariff policies, which have contributed to rising prices in imported goods and services. The Deloitte Insights analysis notes that if these tariffs persist, they could force the Fed to adopt a tighter monetary policy by 2026 to offset inflationary pressures.

While the rate cut may provide some relief to borrowers, it could pose challenges for savers. High-yield savings accounts and CDs, which currently offer rates above 4%, are expected to see gradual declines as the Fed continues to lower the federal funds rate. Analysts advise savers to lock in current rates before they fall further, as the central bank’s actions tend to influence deposit rates indirectly.

The September decision is considered the first of potentially several rate cuts in 2025, with futures markets pricing in additional reductions at the next FOMC meetings in October and December. Deloitte’s economic forecast suggests that the Fed may cut rates by a total of 50 bps in 2025, in line with the median view of FOMC members as of December 2024. However, any further easing will depend on how inflation and economic growth evolve, particularly in the context of shifting trade policies.

The political dynamics surrounding the Fed’s rate-setting decisions have added a new layer of complexity. The appointment of Miran and the ongoing legal battle over the removal of board member Lisa Cook highlight the administration’s efforts to influence the central bank’s independence. Analysts argue that such interventions could erode the Fed’s credibility if not carefully managed, as they risk politicizing a traditionally apolitical institution. Ken Griffin, a prominent Trump supporter, has warned that excessive intervention in monetary policy could undermine long-term market confidence in U.S. debt instruments.

Ultimately, the Fed’s September rate cut signals a shift toward a more accommodative stance in response to a combination of slowing economic growth, rising inflation, and political pressures. While the immediate effects may be limited, the broader implications—both economic and political—are likely to shape U.S. monetary policy for the remainder of 2025 and beyond.